Dive Brief:
- The Atlantic writes that so far, Amazon is delivering on analysts' predictions that it would streamline — or "Amazon-ify" — Whole Foods' operations and turn the grocer into an online company through store delivery and product listings on Amazon.com.
- But, the magazine notes, Amazon's ultimate goal isn't to just make Whole Foods a stronger grocery competitor. It wants to increase the value of its Prime membership and make the food retailer part of its "life bundle" that includes a wide variety of retail goods, entertainment, health care and more.
- The Atlantic writes: "As Amazon extends into more product areas, it can own both the search platform and the product, so that when a dad says to the smart speaker on his counter, 'Alexa, I need brown rice and pork,' the product that arrives is an Amazon-branded box containing Amazon–Whole Foods–branded rice and pork."
Dive Insight:
In its effort to make Prime a one-stop shop for consumers – from award-winning original TV shows and movies to health care – Amazon wants to fill every consumer need. Now, its working out the kinks to add groceries to its long list of products it can quickly deliver.
On the surface, Amazon and Whole Foods appear to be strange bedfellows. Amazon values convenience, low prices, and efficiency. Whole Foods prides itself on quality produce, ethical sourcing and artisanal touches. Both, however, have built cult-like followings, with a large crossover of consumers. The ultimate value of Whole Foods for Amazon, as The Atlantic writes, is to strengthen overall customer loyalty. As it moves into new channels — pharmacy and furniture are recent additions to the list — Amazon strengthens its position as an all-in-one provider, with consumers able to move seamlessly from one offer to another through Amazon.com and its Prime membership service.
Prices have already begun to drop on select items at Whole Foods, in a nod to Amazon’s strategy, but not enough for some customers to make the switch from a competing grocer. To continue driving store traffic and erase the "Whole Paycheck" image, Amazon will have to make broader, more significant price cuts.
Amazon is also approaching the brick-and-mortar stores as more than just markets. Ahead of Black Friday last year, Whole Foods in a handful of cities across the US had pop-up shops set up inside where consumers could test and purchase Amazon goods, ranging from the Echo Dot to the Kindle Paperwhite. The grocery stores could be the perfect testing ground for new ideas, with built-in foot traffic.
This cross-channel approach makes perfect sense for Amazon, but creates a challenge for competing supermarkets that don't have access to massive retail and tech assets. Walmart may be the closest behind Amazon in what it can offer, but most regional chains don’t have the resources to meet consumer needs in the same way.
The upside for these other grocers is that while Prime is popular, Whole Foods stores are far from ubiquitous. The two companies have miniscule market share in grocery. Amazon also has a lot to learn about grocery delivery and store service — as evidenced by Whole Foods' handling of recent out-of-stock issues.
But grocers know better than to sit back on their heels. Amazon's considerable resources and online footprint mean its reach will grow quickly. It's also better positioned than any other food retailer to deliver the in-store and e-commerce technology innovations that consumers are increasingly demanding.